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«Battle for Globalisations? BRICS and US Mega-Regional Trade Agreements in a Changing World Order MARKO JUUTINEN AND JYRKI KÄKÖNEN © 2016 Observer ...»

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A comparison of real GDP figures fails to clarify the underlying dynamics of economic productivity. For instance, at the end of the Second World War, US' share of world economic output was almost 50 percent, and it still accounts for over one-fifth of global economic output today. As a consequence, differences between the growth trajectories of the US and minor-GDP BRICS countries are not discernible in Figure 1. This applies to all BRICS members other than China; for this reason, this study adjusted GDP growth to a fixed reference value for all countries but Russia (GDP1960=100). GDP data for Russia are available only from 1989 onwards. Thus Russian GDP growth is fixed to the adjusted GDP value for US in 1989 (adjusted GDPUS 1989=1040 = reference value for Russia).

The comparison with fixed starting values yielded interesting results, foremost of which is that all BRICS countries were found to exhibit superior economic productivity, with a definite turning point at the beginning of the 21stcentury.

The best performers are China and Brazil, with adjusted GDP at 17505 and 15470, respectively. In contrast, US' adjusted GDP in 2014 was only at 3206, losing with a generous margin to India (5486) and South Africa (4751). Even Russia, with adjusted GDP at 3824, is at slightly higher level than the US. In Battle for Globalisations?

short, had the economies of the BRICS and US been at the same level in 1960, all BRICS countries would today be larger than US. This comparison is shown in Figure 2.

Figure 2: Comparison of GDP with xed start value for US and BRICS members, 1960–2014.

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State-level comparisons do not confirm the condition of power parity, but they do confirm the thesis of change: that BRICS have the potential to overtake the US in the future. The first comparison with real GDP indicates that the US position still remained unrivalled as of 2014, although already being threatened by China. However, the second comparison reveals that the economic dynamics have changed in favor of all BRICS countries during the latter part of the first decade of the 21st century. Given sustained growth rates among the BRICS, the hierarchy of great powers will therefore undergo fundamental change in the coming years.

In their estimates for the world economy in 2050, PwC economists forecast the following rankings, measured by size of national economy. China would be the largest economy, followed by the US and the EU. India would become the fourth largest, with Indonesia taking fifth position. Brazil would overtake Japan as the sixth economy, leaving Japan seventh, followed by Mexico and then Russia at number nine. Interestingly, South Africa's rival Nigeria would have overtaken it by a considerable margin. Individual European powers like Germany, the UK and Russia would be approximately the same in size as Change From A Dominant Power Perspective Nigeria.61 Table 1 compares the predicted order of nations in 2050 with the current order.

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A final comparison included a new variable labelled, 'Contending Bloc,' calculated by summing the individual GDP figures of each BRICS country as a basis for two comparisons with the US: real GDP figures and respective shares of total world GDP. The first comparison reverses the previous results: while individual BRICS countries have not reached power parity, the BRICS as a bloc has. Figure 3 provides an illustration of power parity.

Figure 3: Real GDP comparison: US and 'Contending Bloc' 1960–2014.

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Correspondingly, Figure 4 shows that the GDP share for the hypothetical 'Contending Bloc' equals that of the US. This downward trend in the US' share of world GDP began as early as 1965 with the rise of Europe and Japan to a competitive position. However, Europe and Japan did not rise to challenge the US; instead, US post-war policies such as reconstruction aid, common institutions for financial and economic oversight (Bretton Woods), and the Cold War contributed to the formation of an 'international community' of liberal economies. In contrast, none of today's rising powers are full-fledged members of this community.

Figure 4: Comparison between US and 'Contending Bloc' shares of world GDP 1960–2014.

Source: World Bank

Loss of Financial Hegemony Gruzalski has argued that one of the basic factors in US hegemony has been the role and value of the US dollar in world trade and as a global reserve currency. In addition, Varoufakis64 and Vermeiren65 have suggested that US hegemony between 1970 and 2008 was facilitated by the dismantling of financial regulation and the Federal Reserve's generous interest policy; these two elements – the dollar's international position and the US financial markets – made it possible for the US to maintain strong (finance-led) growth levels despite budget and trade deficits. For that reason, diminished dollar dependence is a threat to the US economy and to its hegemony.

Since the financial crisis of 2008, the dollar has lost some of its international appeal, as competing financial centers are on the rise – for example, Asian Change From A Dominant Power Perspective central banks no longer accumulate dollars as their reserve currency, having cut their dollar reserves to less than 30 percent in 2009.66 At the same time, the biggest trading nation (China) has an obvious interest in promoting its own currency and establishing it as one of the major international currencies through bilateral agreements and bank loans. Cohen has argued that the internationalisation of the Yuan is at the heart of China's financial strategy.

During the two-year period of 2009–2010,China lent more money to the developing world than the World Bank.69 Indeed, as the world's number one trading nation, China enjoys a wide transactional network, enabling it to promote the Yuan in intra-Asian trade transactions. This potential had already materialised in 2013 in a total of 18 currency swap agreements, and some analysts have inferred that a Yuan bloc has effectively replaced the dollar in East Asia.72 However, according to Cohen73 and Khilnani et al.,74 China may not be able to take over US financial hegemony, principally because of the country's limited financial sector liberalisation, the potential instability of its political system, and its insistence on capital controls. Nevertheless, it remains the case that the dollar's position is in decline. The Renminbi's recent accession to the IMF currency basket enhances its stability and appeal as an Asian alternative to dollar.

The US' leading position in world financial governance is also under threat. In 2015,the Asian Infrastructure Investment Bank (AIIB) was established under Chinese leadership, giving China a potentially greater role in Asia, which remains unattainable in the context of an Asian Development Bank still dominated by the US and Japan. The members of AIIB include a number of Western countries as well as some rising and developing economies. However, the US and Japan are not among the 57 founding members, of whom China is the leading shareholder.75 As a consequence, AIIB has the potential to undermine US regional leadership, and this process, supported by broader use of the Yuan in East Asian trade, consolidates the thesis of financial rivalry in Asia between Yuan and dollar blocs. Some researchers have claimed that this polarisation has been driven by a US failure to push through reforms of the World Bank and the IMF, agreed among the G20 as early as 2010.

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mutual trade',77 reflecting both BRICS' opposition to dollar dominance and a reluctance to embrace China's financial dominance. Some Indian scholars and policymakers have argued that even the Indian Rupee could be used as an international currency and would perhaps be more suitable for that purpose than the Yuan. While India's transactional network cannot match the scope of China's, the rupee is convertible via market exchange rates, and its exchange restrictions have been relaxed – a crucial advantage for India, according to Khilnani et al., and one that China lacks.

The establishment of AIIB is mirrored by a similar 2015 BRICS initiative, which established the New Development Bank (NDB) as a complementary IFI to the World Bank and IMF.79 The NDB opened for business on 7 July 2015.

Unlike AIIB, shareholding is equally divided among the five founding members, confirming that the BRICS countries do not wish to replace US financial dominance with Chinese dominance but are instead cooperating on an equal footing. Nevertheless, AIIB and NDB have in common their opposition to a Western-led international economic order, as both rival or at least complement US-dominated IFIs.

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BRICS in the Context of Global Governance T he concept of BRIC was invented by Goldman Sachs economist Jim O'Neill in a report on investment opportunities, referring to the booming economies of Brazil, Russia, India, and China. Following the crisis of 2008, Western investors were no longer the main users of the BRIC acronym, and its whole ideational context has been turned upside down.

Instead of high profit margins for Western capital in the key Southern economies, it referred to Global Southern demands for the leading power in the Global North.

BRICS cooperation has two pillars: (i) cooperation in multilateral fora; and (ii) inter-state cooperation. Cooperation in multilateral fora commenced as early as 2006, and inter-state cooperation was initiated at the second summit in

2010. The initial causes of dissatisfaction related mainly to world economic governance and as such were not dissimilar to the concerns of G20. This broad-based forum for inter-state dialogue includes the current dominant power and its major allies – the EU, Japan, Australia and Canada – as well as major emerging economies and all BRICS members. It would therefore appear that, in its early organisational history, the BRIC adopted a cooperative stance towards the US-led world order, and at the first Summit in 2009, the leaders of the four original member states refrained from setting up mechanisms of integration. This indicates that initially BRIC was little more than a forum for inter-state dialogue and coordination for multilateral fora within the USdominated world order. However, the subsequent evolution of BRICS has transformed it into a full-fledged international organisation.

The following section studies the BRICS evolution within the context of global governance. The scope of analysis is framed using BRICS Joint Statements, BRICS in the Context of Global Governance

and the following themes on global governance are then derived:

(i) development finance (ii) BRICS perception of economic liberalisation (iii) BRICS perception of the international order Initial Cooperative Position (2009-2011) At the first BRIC summit meeting in Yekaterinburg in 2009, the founding members agreed on three overarching themes for future cooperation. First, they emphasised the need to reform the structures of world economic governance, and in particular, the voting structure of the International Monetary Fund and the World Bank. They also expressed their adherence to WTO and G20. The second theme related to issues of sustainable development, including social responsibility for the poorest countries, environmental protection, climate change, and diversification of energy resources and supply. The first BRIC Statement is largely compatible with the G20 statements of 2008 and 2009. What set BRIC apart from the G20 was the third theme, related to foreign policy and world political governance: BRIC expressed their support for a multipolar world order, “based on the rule of international law, equality, mutual respect, cooperation, coordinated action and collective decision-making of all states.”And whereas the G20 has tended to focus on economic governance and development-related issues,82 the BRIC agenda also included a demand for a “comprehensive reform of the United Nations.”83 The second BRIC Summit, held in Brazil in 2010, produced no substantial changes. However, instead of referring to cooperation with Western powers (under the auspices of G20), the second Joint Statement opened with a strong remark on the changing world order: “We share the perception that the world is undergoing major and swift changes that highlight the need for corresponding transformations in global governance in all relevant areas.” Interestingly, this perception of change is not confined to BRIC's official statements – for instance, a US National Intelligence Council report,85 declared that “the 'unipolar moment' is over and Pax Americana […] is fast winding down.” For BRIC, this perception of power legitimised their demand for equal membership in global economic and political governance within a “multipolar, equitable and democratic world order.”

Battle for Globalisations?

At the same time, there is no evidence in the second Joint Statement of a decline in BRIC's desire to cooperate with the West. Between 2009 and 2010, the most important change in BRIC relations was the initiation of inter-state cooperation, structured as meetings between various state and non-state agents. Participating state authorities included ministers of agriculture and finance, high-ranking security officials, governors of central banks and development banks, and heads of statistical institutions and competition authorities. In addition to this inter-state dialogue, meetings were to be launched between BRIC business groups, think-tanks, and cooperatives.

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